setting the height of the popup creates a container of the appropriate height, but some internal scroll div in the popup container still has a max height of 200, so you get a little scroll box inside the larger popup box instead of expanding to fill the container.
You can see this behavior in your documentation here.
https://www.telerik.com/kendo-angular-ui/components/dropdowns/api/PopupSettings/
click the run code on your example and open the dropdown.